First home buyers at record low as investors price them out

PETER LLOYD: September saw a rebound in home lending as the spring selling season kicked-off.

But first home buyers have been left well behind, making up the smallest share of the property market in figures that go back more than 20 years.

Business reporter Michael Janda.

MICHAEL JANDA: The Bureau of Statistics housing finance figures for September show a tale of two markets.

Overall, the number of owner-occupied home loans jumped 4.4 per cent, while investor loans were up more than 5 per cent in a month.

SCOTT HASLEM: Housing in Australia still remains pretty expensive, but it's become cheaper than it has been for the last 10 years given the fall in interest rates and, up until recently, some moderation in the prices.

MICHAEL JANDA: UBS Australia chief economist Scott Haslem says the picture is different for first home buyers.

SCOTT HASLEM: In contrast, though, first home owners aren't seeing relative affordability, they're seeing absolute unaffordability. So I think for first home owners, housing in Australia still looks pretty expensive.

MICHAEL JANDA: With the surge in loans to investors and upgraders, first time buyers made up just 12.5 per cent of the market.

That's the lowest proportion in ABS figures that go back to July 1991.

ANZ's senior property analyst, David Cannington, says there are several factors at play.

DAVID CANNINGTON: One of them has been continued job security concerns. We've also had a number of changes to state government first home buyer concession. And I think overall, with some of the price gains that we've seen more recently, that home deposit affordability has remained difficult and has started to increase, even though mortgage service affordability has eased with lower mortgage rates.

MICHAEL JANDA: One factor that can't be blamed for a lack of first home buyer activity is the willingness of banks to lend.

The major banks are now lending an average of more than 80 per cent of a property's value to first home buyers, up from 72.5 per cent three years ago.

MARTIN NORTH: There has been a slight acceleration of higher loan to value ratio loans being written. From the lows back in 2009/10 they're pretty much doubled what they were.

MICHAEL JANDA: But low-deposit loans are also being issued to investors, with the average investor borrowing 78 per cent of the property's value.

MARTIN NORTH: Some of those investor loans are interest only loans, and deliberately high loan to value ratio because obviously they want to do it to get the tax benefits.

MICHAEL JANDA: Investors now account for almost half the new loans issued, and David Cannington says they are bidding up prices.

DAVID CANNINGTON: I think it adds to total demand in the housing market and therefore puts upward pressure on prices.

MICHAEL JANDA: Scott Haslem says those surging housing prices, most notably in Sydney and Melbourne, have the Reserve Bank a little concerned.

SCOTT HASLEM: We've seen them start a little bit of what we call open mouth operations in terms of highlighting to the banks that they shouldn't go down the credit curve, and then talking to households about making sure they buy on the basis of reasonable expectations about house prices over the next few years. So I certainly think the RBA is keeping a close eye on the housing sector.

MICHAEL JANDA: Mr Haslem says the most effective way to improve affordability for first home buyers is to boost supply.

SCOTT HASLEM: Governments can be reducing the costs of bringing product to market, so reducing some of those very high developer levies. And I think there's a big issue around our transport infrastructure, which makes it very difficult to live a long way out of the city and still work in the city.

MICHAEL JANDA: But as Australia's long-suffering commuters know only too well, that's likely to be a very long-term solution to an immediate problem.